Microsoft plays catch-up with Windows 2000

Published 4:00 am, Monday, February 14, 2000

Windows 2000, Microsoft's new corporate operating system debuting Thursday, can give businesses greater computing power to help them cope with the challenges of the new Internet economy.

But whether businesses will buy it is far from certain.

The release of Windows 2000, which cost more than $1 billion to develop, comes at a time when the seemingly unassailable software giant is facing challenges on several fronts, including a government antitrust lawsuit and intensifying competition amid an increasingly unpredictable economy.

Last Friday, Microsoft shares declined by almost 6 percent to $99.94 after the Gartner Group, an influential research group, warned that as many as half of the customers who install Windows 2000 in the next two years could have compatibility problems with their old software.

A Microsoft official said that Windows 2000 is already compatible with more than 8,000 applications and, on average, should run about 95 percent of the computer programs already installed in the company's system.

Despite its name, Windows 2000 is not an upgrade to the consumer-oriented

Windows 98 but rather a successor to the corporate operating system Windows NT 4.0. While some home users may choose to purchase Windows 2000 for its Web application services and its increased security features, the new operating system is designed for businesses that need to conduct complex business operations on or off the Internet.

Cost may prove to be a deterrent for some users, with individual versions starting at $149. Network versions start at $599 and climb based on the number of users licensed. Windows 98, on the other hand, retails for $89.

Analysts so far have given Windows 2000 favorable reviews, albeit with some caveats. "This is probably the best product Microsoft has ever released in terms of meeting the expectations of the purchasing audience," said analyst Rob Enderle at research firm Giga Information Group.

"It's also a product that may be shipping too late for its own good. About two years ago, they probably would have been able to hold back the emergence of competing products, but now the genie's out of the bottle."

The release of Windows 2000 was delayed for more than a year, allowing companies packaging the upstart Linux operating system and rival Sun Microsystems Inc. to gain inroads among such leading e-commerce companies as eBay Inc. and Amazon.com Inc.

The additional time spent in development may help forestall a common complaint about initial Microsoft releases: They're buggy and cause computer shutdowns.

"We know the potential Windows 2000 has, but we want to test it to make sure that it is a stable platform for all the functionalities our site has to offer," said Ron Synn, systems administrator for online drugstore CVS.com, which now uses Windows NT. "That means we're not going to run out and install it just for the sake of being first; we're taking a cautious approach."

Microsoft officials acknowledge that Windows 2000 will not fly off the shelves like Windows 98 did. Still, they take pains to note that many of their Fortune 500 customers eventually plan to upgrade Windows NT, which currently commands about 38 percent of the market.

"There was no way we were going to rush something out," said Keith White, director of Windows marketing. "We think this is the right product for the right time, and it addresses some of the key issues customers have today, including reliability and scalability as organizations grow."

Microsoft, which will release Windows 2000 Thursday in San Francisco, plans to spend more money than it ever has on a single product launch - more than $200 million in advertising alone.

It's the company's first major release since a judge found Microsoft to be a monopoly last year. A possible punishment stemming from the antitrust suit brought by the Justice Department and 19 states over its actions in the Web browser market has yet to be determined, though both sides are currently meeting an arbitrator.

While the U.S. case has nothing to do with Windows 2000, Micro

soft is already facing legal scrutiny overseas. Last week, the European Union announced it had opened an investigation into whether Windows 2000 has been designed to make competitors' software difficult to interact with the operating system in an effort to give the company a position of dominance in the software and electronic commerce market.

The EU may be helped by a recent Gartner Group study predicting that one of every four corporations that upgrades to Windows 2000 may run into compatibility issues. Microsoft said it is cooperating with the investigation.

Cost may also be a factor. The software price alone will be only a small portion of the total cost to convert to the complex new system - time and money spent training users will certainly exacerbate the cost.

In a recent study of a sample network of 30 servers and 5,000 workstations, Giga Information found a company would have to spend $535,000 to get Windows 2000 up and running on its servers, and another $973 per workstation - a total of $5.4 million.

Linux, in contrast, is an open platform and is essentially free before training and other costs are factored in; Sun is more expensive, but is seen as more powerful than Windows 2000 and has already established a core following.

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Ultimately, Windows 2000 does not represent a make-or-break product for a company that has a market value of more than $500 billion.

Analysts say it is a key element in Microsoft's strategy to become a dominant player in the Web market by being the underlying software provider for everything from PCs to Internet appliances to hand-held and car-equipped systems. &lt;

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